Full Disclosure: I love my iPhone. It is a paid-in-full iPhone XS Max that is six years old and works like a champ. Sooner or later, Apple will stop updating the device, but until then, my investment is on the right side of the power curve. I also have an Apple credit card. It has never had more than $80 posted in a month. I used the physical card only once and never paid any interest.
The Sour Apple Card
When it re-vamped its credit card co-brand, initially with Barclaycard, and then moved to Goldman Sachs, it promised it was a “new kind of credit card created by Apple and designed to help customers lead a healthier financial life.”
However, for Apple’s partner, Goldman Sachs, the credit card was a new kind of business line, but it became a less-than-healthy financial investment for Goldman. The WSJ covers the latest turmoil, as Goldman Sachs offloads their failed GM credit card and wonders what to do with its $17 billion Apple card receivable.
The title sets the stage, as the WSJ frames the story: “Goldman’s Credit-Card Exit Hampered by Lax Lending Standards” subtitled “The bank lent loosely on some credit cards, contributing to a big loss as it tries to sell the General Motors card business.”
First, Get the GM Mess Out of the Way
Ouch. More than 2x the current chargeoff trend, says the WSJ. Things did not look this way when Capital One owned the GM co-brand.
- Average charge-offs on the Goldman-originated accounts, which make up roughly one-third of the GM portfolio, surpass 10%, the people said.
- In contrast, the annualized credit-card charge-off rate for commercial banks in the U.S. was about 4.5% in the second quarter of the year, according to Federal Reserve data.
- The partnership has roughly $2 billion in balances.
The Apple Portfolio is Nine Times Larger Than the GM Portfolio
- The far more challenging deal to offload will be the Apple partnership, where credit-card balances total around $17 billion. Apple sent Goldman a proposal late last year to exit from the contract within 12 to 15 months, the Journal reported, which called for an end to the credit-card partnership the companies launched in 2019 and the savings account they rolled out in 2023.
- Goldman could be facing a bigger loss when it sells this credit-card program to a new issuer than what it is now expecting to incur with the GM sale.
Where This is Going
Call me old-school, but credit quality matters. It has to be earned through the blood, sweat, and tears of rigorous standards and discipline. Goldman Sachs has a mess on its hands, and we think the worst is yet to come.
But for me, I’ll take my 6-year old, paid in full iPhone anytime. And, I will keep my 800 FICO Score, too.
As to breakups in co-brands, read our latest here: Disbanded Co-Brands: When Credit Card Joint Ventures Fail | Javelin (javelinstrategy.com)
